Pensioners now need £37,300 a year in retirement to live comfortably

·2-min read
retirement savings
retirement savings

Workers must now save an extra £90,000 if they want a comfortable retirement, analysis has revealed.

Because of high inflation, retirees will now need an income of £37,300 a year on average, up 11pc from £33,600 a year ago, according to the Pensions and Lifetime Savings Association, a trade body.

To achieve this, they would need a pension pot of £630,000, which is £90,000 more than a year ago, according to RBC Brewin Dolphin, a wealth manager.

Workers who are about to retire will see their incomes squeezed this year by the added financial pressure of having to save so much more in a short timeframe.

The analysis assumed an average return of 5pc a year and factored in a full state pension – those without one would need to save even more.

Those who do not put away extra savings could run out of money earlier than planned.

A 40-year-old with a typical pension pot of £120,000 would need to put about £720 a month into their pension to retire with £630,000, assuming 5pc growth and 2pc inflation.

A 50-year-old with a pension pot of £180,000 would have to contribute £1,200 a month.

Carla Morris, of RBC Brewin Dolphin, said: “The combination of stock market volatility and rising inflation makes this a particularly challenging time for those coming up to retirement.”

Three quarters of Britons do not think they have enough in their pension funds to retire, according to a survey by the wealth manager.

One way workers can achieve guaranteed returns in retirement is by purchasing annuities, which exchange a lump sum for a guaranteed income until death. Their pay rates are based largely on the yield on British government bonds, or “gilts”. Yields spiked to levels not seen since 2008 last autumn, after the former chancellor Kwasi Kwarteng’s mini-Budget.

Workers would need a pension pot of approximately £643,000 to buy an annuity that would provide an income of £26,700. Adding this to the £10,600 annual value of the state pension would be enough to retire comfortably.

A downside of annuities is that they are more difficult to pass on to loved ones after death. With some annuities, payments end with the death of the owner, while others will allow for the payments to be made to a spouse or another beneficiary.